where orders emerge

Culture and Coase

Earlier this week, my co-blogger Don Boudreaux discussed the application of Coase’s insights to property rights issues in Idaho. Reader Dave Meleney writes in with the following observation:

I am often trimming trees at expensive homes where people think nothing of spending an extra $50,000 for a lot with a fine view of the mountains… but are quite reluctant to offer a neighbor a grand or so to gain permission to trim trees that block such a wonderful view … even when the height of the trees in question seem to give the owner no benefit whatsoever.

It just doesn’t seem cool to ask. Perhaps some post-Coasian wordsmith could suggest the proper wording for such a request?

Dave raises a very interesting question. In this example, it appears obvious that there are gains from trade yet they go unexploited. Coase provides the tautological answer that the transaction costs of making this trade evidently outweigh the benefits. But why would that be? The gains seem very large and the costs seem pretty small—a few minutes of negotiation to agree on a price. The next level of explanation, also somewhat tautological is that there are cultural barriers to that negotiation that make such negotiations unseemly somehow. A similar question arises when you go to the grocery, you’re in an enormous hurry and you’re buying one item. You go to the 10 items or less line and there are four people in front of you. It’s pretty hard to say, excuse me, I’m in a big hurry. May I cut in line? And just to prove I’m not scamming you, here’s a dollar for each of you. OK?

I’ve never seen that kind of thing happen except in airplanes where someone has to make a connecting flight. People will step aside to let someone through and people don’t feel foolish asking. But no one offers money. In fact, Julian Simon’s innovation of people giving up their seat on an airline in exchange for a free ticket is an institutionalized example of this kind of beneficial exchange. Now we’re accustomed to it. But can you imagine someone showing up at a flight and announcing to the waiting room, I’m really eager to get on this flight. Who will sell me their ticket? People would look at such a person with alarm, just as they would if you offered money to move up in the grocery line. Our culture doesn’t smile on that kind of thing in that setting. Yet at sporting events and sometimes theaters, scalping is widespread.

Why do we allow money to be used eagerly in some of the above situations but not others? Why are there cultural or emotional barriers to using money in some settings but not in others? Why in some settings are we uncomfortable even asking for something, with or without money?